Akorn Completes 2014 Financial Statement Restatement and Reports Audited 2015 and Restated 2014 Results

– Sets Date for 2016 Annual Meeting

– Affirms 2016 Net Revenue and Earnings per Share Guidance

LAKE FOREST, Ill., May 10, 2016 (GLOBE NEWSWIRE) — Akorn, Inc. (Nasdaq:AKRX), a leading specialty generic pharmaceutical company, today announced that it has filed its Annual Report on Form 10-K for the fiscal year December 31, 2015 (“Form 10-K”).  The Company is now up to date on filing its periodic reports with the Securities and Exchange Commission (the “SEC”).  The Company also announced plans to hold its 2016 annual meeting of shareholders on July 1, 2016.
The Company’s comprehensive Form 10-K filed today contains the following:

• consolidated financial statements for the year ended December 31, 2015, and unaudited quarterly financial information for the quarters in 2015; and
• consolidated restated financial statements for the year ended December 31, 2014 and unaudited restated quarterly financial information for the quarters in 2014.

Raj Rai, Akorn’s Chief Executive Officer, said, “The completion of the restatement of 2014 financial statements and the audit of the 2015 financial statements are important milestones for our Company.  This allows our Company to shift its focus on executing on the strategic objectives and growth opportunities.   I would like to thank the Akorn team members under the leadership of Duane Portwood and Randy Pollard for their perseverance and hard work throughout this process.”
Duane Portwood, Akorn’s Chief Financial Officer, added, “We filed our Annual Report on Form 10-K for 2015 and have scheduled our annual shareholders meeting for July 1, 2016, for compliance with the Listing Rules exception granted by the NASDAQ Listing Panel.  As we move forward in 2016, we look forward to completing the remediation of our internal control weaknesses while helping the Company execute on its strategic objectives and growth opportunities.”
Financial Restatement for the Year Ended December 31, 2014
As discussed in the Form 10-K, the Company identified accounting errors primarily associated with rebates and contractual allowances for 2014.  Net revenue for 2014 as previously reported of $593 million was overstated by $38 million and is now restated to be $555 million.  Income from continuing operations before income taxes for 2014 as previously reported of $59 million was overstated by $34 million and is now restated to be $25 million.
On May 7, 2016, the Audit Committee of the Board of Directors of Akorn, Inc., upon the recommendation of the Company’s management, concluded that the unaudited financial information for the quarterly period ended March 31, 2014 contained an error related to commitment fees incurred to consummate term loan debt.  Specifically, the fees were incorrectly expensed in the quarter rather than amortized over the life of the term loan debt.  Income from continuing operations before income taxes for the quarter ended March 31, 2014 as previously reported of $16 million is now restated to be $18 million.  The unaudited restated quarterly financial information for the quarter ended March 31, 2014 was included in the Form 10-K.
Key Financial Highlights for the Year Ended December 31, 2015
Revenues. Consolidated revenue for 2015 was $985 million, an increase of 77% over 2014 revenue of $555 million (as restated).
Gross Margin. Consolidated gross margin for 2015 was 60.5%, compared to 47.1% (as restated) for 2014.  Excluding $6.3 million in costs from amortization of inventory step up and other items, non-GAAP gross margin was 61.1%, up from 51.2% (as restated) in 2014.
EBITDA. Earnings before interest, taxes, depreciation and amortization was $370 million in 2015, compared to $119 million (as restated) in 2014.  Adjusted EBITDA, which is a non-GAAP measure used by management to evaluate the continuing operations of the Akorn business, was $460 million in 2015, compared to $182 million (as restated) in 2014.  A full reconciliation of adjusted EBITDA adjustments can be found at the end of this press release.
Net Income per Share. Fully diluted earnings per share (EPS) was $1.22 in 2015 compared to $0.13 (as restated) in 2014.  Including a net adjustment of $100 million to net income for non-GAAP items, adjusted fully diluted EPS was $2.02 in 2015.  Including a net adjustment of $64 million to net income, adjusted fully diluted EPS was $0.63 (as restated) for 2014.  Adjustments to net income in 2015 and 2014 included a number of items detailed at the end of this press release.  Please refer to this table for a full reconciliation of GAAP to non-GAAP items.
Annual Meeting
The Company plans to hold its 2016 annual meeting of shareholders on July 1, 2016, within the extension period through July 5, 2016 granted by the Listing Qualifications Panel of The NASDAQ Stock Market to satisfy proxy solicitation and annual meeting requirements.  Shareholders of record on May 11, 2016, the record date for the meeting, will be entitled to vote at the meeting. Qualified stockholder proposals (including proposals made pursuant to Rule 14a-18 under the Securities Exchange Act of 1934, as amended) to be presented at the Annual Meeting and included in the Company’s proxy statement and form of proxy relating to that meeting must be received by the Company at Company Headquarters, addressed to the corporate secretary, not later than the close of business on May 16, 2016. Such proposals must also comply with all applicable requirements, including applicable Louisiana law, the rules and regulations promulgated by the SEC, and the procedures set forth in the Company’s Amended and Restated Bylaws.
Earnings Guidance Affirmed for Full Year 2016
The Company is maintaining its full year 2016 financial guidance inclusive of net revenue of $1,060 – $1,080 million, GAAP diluted earnings per share of $1.56 – $1.66, and adjusted diluted earnings per share (non-GAAP) of $2.10 – $2.20.
Akorn’s guidance only contemplates launches of products approved by the U.S. Food and Drug Administration (“FDA”) as of May 10, 2016 along with the full year contribution of products launched in 2015.  Products that are not yet approved by the FDA are not included in Akorn’s 2016 financial guidance.  Other guidance assumptions are detailed in the Company’s March 22, 2016 press release.
2015 Form 10-K Conference Call and Webcast Details
Akorn’s management plans to hold a conference call with interested investors and analysts at 10:00 am ET on Tuesday, May 10, 2016 to discuss the Company’s audited 2015 and audited and restated 2014 results.  The dial-in number to access the call is (844)-249-9382 in the U.S. and Canada and (270) 823-1530 for international callers. The conference ID is 7498448. To access the live webcast, please go to Akorn’s Investor Relations website at https://investors.akorn.com.
A webcast replay of the conference call will be available shortly following the conclusion of the call and will be available for 90 days. To access the replay, please go to Akorn’s Investor Relations website at https://investors.akorn.com.
Non-GAAP Financial Measures
To supplement Akorn’s financial guidance presented in accordance with U.S. generally accepted accounting principles (GAAP), the Company uses the following non-GAAP (also referred to as “adjusted” or “non-GAAP adjusted”) financial measures in this press release and the accompanying tables:(i) EBITDA, (ii) adjusted EBITDA, (iii) adjusted net income, (iv) adjusted diluted earnings per share, (v) adjusted revenues, and (vi) adjusted gross margin. The Company believes that each of these non-GAAP financial measures is helpful in understanding the Company’s past financial performance and potential future results, particularly in light of the effect of various acquisition and divestiture transactions effected by the Company.  The non-GAAP financial measures are not meant to be considered in isolation or as a substitute for or superior to comparable GAAP measures.
Akorn’s management uses adjusted EBITDA, adjusted net income and adjusted diluted earnings per share in managing and analyzing its business and financial condition. Akorn’s management believes that the presentation of these and other non-GAAP financial measures provide investors greater transparency into Akorn’s ongoing results of operations allowing investors to better compare the Company’s results from period to period. The Company believes that adjusted gross margin, although a non-GAAP financial measure, is useful and meaningful to investors as a basis for making investment decisions. It provides investors with a supplemental way to understand the underlying operating performance of the Company.
Investors should note that these non-GAAP financial measures used to present financial guidance are not prepared under any comprehensive set of accounting rules or principles and do not reflect all of the amounts associated with the Company’s results of operations as determined in accordance with GAAP. Investors should also note that these non-GAAP financial measures have no standardized meaning prescribed by GAAP and, therefore, have limits in their usefulness to investors. In addition, from time-to-time in the future there may be other items that the Company may exclude for purposes of its non-GAAP financial measures; likewise, the Company may in the future cease to exclude items that it has historically excluded for purposes of its non-GAAP financial measures. Because of the non-standardized definitions, the non-GAAP financial measures as used by Akorn in this press release and the accompanying tables may be calculated differently from, and therefore may not be directly comparable to, similarly titled measures used by the Company’s competitors and other companies.
Set forth below is the definition of each non-GAAP financial measure as used by the Company in this press release and a full reconciliation of each non-GAAP financial measure to the most closely applicable GAAP financial measures is included herein.
EBITDA, as defined by the Company, represents net income before net interest expense, income tax expense, depreciation and amortization.
Adjusted EBITDA, as defined by the Company, is calculated as follows:
Net income, plus:

• Interest income (expense), net
• Provision for income taxes
• Depreciation and amortization
• Amortization of acquisition related inventory step-up
• Non-cash expenses, such as share-based compensation expense, and amortization of deferred financing costs
• Other adjustments, such as legal settlements, restatement expenses and various acquisition and disposition related expenses
• Less gains (or plus losses) on foreign currency transactions

Adjusted EBITDA is deemed by the Company to be a useful performance indicator because it includes an add back of non-cash and non-recurring operating expenses which have little to no bearing on cash flows and may be subject to uncontrollable factors not reflective of the Company’s true operational performance.
Adjusted net income, as defined by the Company, is calculated as follows:
Net income, plus:

• Intangible asset amortization
• Non-cash expenses, such as non-cash interest, share-based compensation expense, and amortization of financing costs
• Other adjustments, such as legal settlements, restatement expenses and various acquisition and disposition related expenses
• Amortization of acquisition-related inventory step-up
• Less gains (or plus losses) on foreign currency transactions
• Less gains related to acquisitions and divestitures
• Less an estimated tax provision, net of the benefit from utilizing net operating loss carry-forwards effected for the adjustments noted above

Adjusted diluted earnings per share is equal to adjusted net income divided by the actual or anticipated diluted share count for the applicable period. The Company believes that adjusted net income and adjusted diluted earnings per share are meaningful financial indicators, to both Company management and investors, in that they exclude non-cash income and expense items that have no impact on current or future cash flows, as well as other income and expense items that are not expected to recur and therefore are not reflective of continuing operating performance.
The shortcomings of non-GAAP financial measures as guidance or performance measures are that they provide a view of the Company’s results of operations without including all events during a period. For example, Adjusted EBITDA does not take into account the impact of capital expenditures on either the liquidity or the financial performance of the Company and likewise omits share-based compensation expenses, which may vary over time and may represent a material portion of overall compensation expense. Adjusted net income does not take into account non-cash expenses that reflect the amortization of past expenditures, or include share-based compensation, which is an important and material element of the Company’s compensation package for its directors, officers and other key employees. Due to the inherent limitations of non-GAAP financial measures, investors should consider non-GAAP measures only as a supplement to, not as a substitute for or as a superior measure to, measures of financial performance prepared in accordance with GAAP. Investors and other readers are encouraged to review the related GAAP financial measures and the reconciliation of non-GAAP measures to their most closely applicable GAAP measures as presented in this press release.
Forward Looking Statements
This press release includes statements that may constitute “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on Akorn’s current expectations and projections about future trends, events and uncertainties.  Forward-looking statements may include, among others, statements concerning the expected completion of NASDAQ requirements to remain listed, the expected impact of the restatement on our financial our financial guidance, including projections of net revenue and earnings per share, the timing of filings, conference calls, our 2016 annual meeting, and other statements regarding Akorn’s goals and strategy. These statements are not historical facts. The words “plan,” “intend,” “will,” “anticipate,” “believe,” “estimate,” “potential,” “expect” and similar expressions are generally intended to identify forward-looking statements. Because such statements inherently involve risks and uncertainties, actual future results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to: the difficulty of predicting the impact of our restatement on our financial results, and the timing of the completion of the remaining NASDAQ requirements to remain listed on the NASDAQ Global Select Market; the difficulty of predicting the timing or outcome of product development efforts, including FDA and other regulatory agency approvals and actions, if any; the impact of competitive products and pricing; the susceptibility of our generic and off-patent pharmaceutical products to competition, substitution policies and reimbursement policies of the government; the timing and success of product launches; difficulties or delays in manufacturing; the availability and pricing of third party sourced products and materials; successful compliance with FDA and other governmental regulations; the continuing consolidation of our customer base, which could adversely affect sales of our products; our dependence on a small number of distributors, the loss of any of which could have a material adverse effect; changes in the laws and regulations and such other risks and uncertainties outlined in Akorn’s public filings with the SEC, including the Company’s Form 10-K for the fiscal year ended December 31, 2015.  Except as expressly required by law, Akorn disclaims any intent or obligation to update these forward-looking statements.
About Akorn:
Akorn, Inc. is a specialty generic pharmaceutical company engaged in the development, manufacture and marketing of multisource and branded pharmaceuticals. Akorn has manufacturing facilities located in Decatur, Illinois; Somerset, New Jersey; Amityville, New York; Hettlingen, Switzerland and Paonta Sahib, India that manufacture ophthalmic, injectable and specialty sterile and non-sterile pharmaceuticals. Additional information is available on Akorn’s website at www.akorn.com.
Additional Financial Tables and Supplemental Information Table of Contents:

FYE 2015 Reconciliation of Net Income to Non-GAAP Adjusted EBITDA:

FYE 2015 Reconciliation of GAAP Net Income to Non-GAAP Adjusted Net Income and GAAP EPS to Non-GAAP EPS:

 
FYE 2015 Reconciliation of GAAP Gross Margin % to non-GAAP Gross Margin %:

Quarter ended March 31, 2015 Reconciliation of Net Income to Non-GAAP Adjusted EBITDA:

Quarter ended March 31, 2015 Reconciliation of GAAP Net Income to Non-GAAP Adjusted Net Income and GAAP EPS to Non-GAAP EPS:

Quarter ended June 30, 2015 Reconciliation of Net Income to Non-GAAP Adjusted EBITDA:

Quarter ended June 30, 2015 Reconciliation of GAAP Net Income to Non-GAAP Adjusted Net Income and GAAP EPS to Non-GAAP EPS:

Quarter ended September 30, 2015 Reconciliation of Net Income to Non-GAAP Adjusted EBITDA:

Quarter ended September 30, 2015 Reconciliation of GAAP Net Income to Non-GAAP Adjusted Net Income and GAAP EPS to Non-GAAP EPS: